Question 1

Which of the following events would shift money demand to the right?

Accepted Answer

A)  an increase in the interest rate or an increase in the price level 
B)  an increase in the interest rate,but not an increase in the price level 
C)  an increase in the price level,but not an increase in the interest rate 
D)  neither an increase in the interest rate nor an increase in the price level 
A)  an increase in the interest rate or an increase in the price level 
B)  an increase in the interest rate,but not an increase in the price level 
C)  an increase in the price level,but not an increase in the interest rate 
D)  neither an increase in the interest rate nor an increase in the price level

Question 2

If Congress cuts spending to balance the federal budget,the Fed can act to prevent unemployment and recession by

Accepted Answer

A)  buying bonds to increase the money supply 
B)  buying bonds to decrease the money supply. 
C)  selling bonds to increase the money supply. 
D)  selling bonds to decrease the money supply. 
A)  buying bonds to increase the money supply 
B)  buying bonds to decrease the money supply. 
C)  selling bonds to increase the money supply. 
D)  selling bonds to decrease the money supply.

Question 3

An essential piece of the liquidity preference theory is the demand for money.

Accepted Answer

A) True 
 B)False

Question 4

The most important reason for the slope of the aggregate-demand curve is that as the price level

Accepted Answer

A)  increases,interest rates increase,and investment decreases. 
B)  increases,interest rates decrease,and investment increases. 
C)  decreases,interest rates increase,and investment increases. 
D)  decreases,interest rates decrease,and investment decreases. 
A)  increases,interest rates increase,and investment decreases. 
B)  increases,interest rates decrease,and investment increases. 
C)  decreases,interest rates increase,and investment increases. 
D)  decreases,interest rates decrease,and investment decreases.

Question 5

Figure 24-4.On the figure,MS represents money supply and MD represents money demand.  
-Refer to Figure 24-4.Suppose the current equilibrium interest rate is r1.Let Y1 represent the corresponding quantity of goods and services demanded,and let P1 represent the corresponding price level.Starting from this situation,if the Federal Reserve increases the money supply and if the price level remains at P1,then

Accepted Answer

A)  there will be an increase in the equilibrium quantity of goods and services demanded. 
B)  there will be a decrease in the equilibrium quantity of goods and services demanded. 
C)  there will be an increase in the equilibrium interest rate. 
D)  fewer firms will choose to borrow to build new factories and buy new equipment. 
A)  there will be an increase in the equilibrium quantity of goods and services demanded. 
B)  there will be a decrease in the equilibrium quantity of goods and services demanded. 
C)  there will be an increase in the equilibrium interest rate. 
D)  fewer firms will choose to borrow to build new factories and buy new equipment.

Question 6

Other things the same,which of the following responses would we expect to result from an decrease in U.S.interest rates?

Accepted Answer

A)  U.S.citizens decide to hold more foreign bonds. 
B)  People choose to hold more currency. 
C)  You decide to purchase a new oven for your cookie factory. 
D)  All of the above are correct. 
A)  U.S.citizens decide to hold more foreign bonds. 
B)  People choose to hold more currency. 
C)  You decide to purchase a new oven for your cookie factory. 
D)  All of the above are correct.

Question 7

As income rises

Accepted Answer

A)  money demand rises,so the interest rate rises. 
B)  money demand rises,so the interest rate falls 
C)  money demand falls,so the interest rate rises. 
D)  money demand falls,so the interest rate falls. 
A)  money demand rises,so the interest rate rises. 
B)  money demand rises,so the interest rate falls 
C)  money demand falls,so the interest rate rises. 
D)  money demand falls,so the interest rate falls.

Question 8

Figure 24-5.On the figure,MS represents money supply and MD represents money demand.  
-Refer to Figure 24-5.A shift of the money-demand curve from MD1 to MD2 could be a result of

Accepted Answer

A)  a decrease in taxes. 
B)  an increase in government spending. 
C)  an increase in the price level. 
D)  All of the above are correct. 
A)  a decrease in taxes. 
B)  an increase in government spending. 
C)  an increase in the price level. 
D)  All of the above are correct.

Question 9

Which of the following events would shift money demand to the left?

Accepted Answer

A)  an increase in the interest rate or an increase in the price level 
B)  an increase in the interest rate,but not an increase in the price level 
C)  an increase in the price level,but not an increase in the interest rate 
D)  neither an increase in the interest rate nor an increase in the price level 
A)  an increase in the interest rate or an increase in the price level 
B)  an increase in the interest rate,but not an increase in the price level 
C)  an increase in the price level,but not an increase in the interest rate 
D)  neither an increase in the interest rate nor an increase in the price level

Question 10

The opportunity cost of holding money

Accepted Answer

A)  decreases when the interest rate increases,so people desire to hold more of it. 
B)  decreases when the interest rate increases,so people desire to hold less of it. 
C)  increases when the interest rate increases,so people desire to hold more of it. 
D)  increases when the interest rate increases,so people desire to hold less of it. 
A)  decreases when the interest rate increases,so people desire to hold more of it. 
B)  decreases when the interest rate increases,so people desire to hold less of it. 
C)  increases when the interest rate increases,so people desire to hold more of it. 
D)  increases when the interest rate increases,so people desire to hold less of it.

Question 11

Which of the following is correct?

Accepted Answer

A)  A higher price level shifts money demand rightward. 
B)  When money demand shifts rightward,the interest rate rises. 
C)  A higher interest rate reduces the quantity of goods and services demanded. 
D)  All of the above are correct. 
A)  A higher price level shifts money demand rightward. 
B)  When money demand shifts rightward,the interest rate rises. 
C)  A higher interest rate reduces the quantity of goods and services demanded. 
D)  All of the above are correct.

Question 12

If the MPC is 3/4 then the multiplier is

Accepted Answer

A)  4,so a $100 increase in government spending increases aggregate demand by $400. 
B)  4,so a $100 increase in government spending increases output by $400. 
C)  4/3,so a $100 increase in government spending increases aggregate demand by $400/3. 
D)  4/3,so a $100 increase in government spending increases output by $400/3. 
A)  4,so a $100 increase in government spending increases aggregate demand by $400. 
B)  4,so a $100 increase in government spending increases output by $400. 
C)  4/3,so a $100 increase in government spending increases aggregate demand by $400/3. 
D)  4/3,so a $100 increase in government spending increases output by $400/3.

Question 13

In recent years,the Fed has chosen to target interest rates rather than the money supply because

Accepted Answer

A)  Congress passed a law requiring them to do so. 
B)  the President requested them to do so. 
C)  the money supply is hard to measure with sufficient precision. 
D)  changes in the interest rate change aggregate demand,but changes in the money supply do not. 
A)  Congress passed a law requiring them to do so. 
B)  the President requested them to do so. 
C)  the money supply is hard to measure with sufficient precision. 
D)  changes in the interest rate change aggregate demand,but changes in the money supply do not.

Question 14

Open-market purchases

Accepted Answer

A)  increase investment and real GDP. 
B)  decrease investment and increase real GDP. 
C)  increase investment and decrease real GDP. 
D)  decrease investment and real GDP. 
A)  increase investment and real GDP. 
B)  decrease investment and increase real GDP. 
C)  increase investment and decrease real GDP. 
D)  decrease investment and real GDP.

Question 15

According to liquidity preference theory,investment spending would rise if the price level

Accepted Answer

A)  fell,making the interest rate rise. 
B)  fell,making the interest rate fall. 
C)  rose,making the interest rate rise. 
D)  rose,making the interest rate fall. 
A)  fell,making the interest rate rise. 
B)  fell,making the interest rate fall. 
C)  rose,making the interest rate rise. 
D)  rose,making the interest rate fall.

Question 16

The theory of liquidity preference was developed by Irving Fisher.

Accepted Answer

A) True 
 B)False

Question 17

The Fed can influence the money supply by

Accepted Answer

A)  changing how much it lends to banks. 
B)  changing the interest rate it pays banks on the reserves they are holding. 
C)  using open-market operations. 
D)  All of the above are correct. 
A)  changing how much it lends to banks. 
B)  changing the interest rate it pays banks on the reserves they are holding. 
C)  using open-market operations. 
D)  All of the above are correct.

Question 18

Some economists,called supply-siders,argue that changes in the money supply exert a strong influence on aggregate supply.

Accepted Answer

A) True 
 B)False

Question 19

A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are

Accepted Answer

A)  smaller in closed economies than in open economies. 
B)  larger in closed economies than in open economies. 
C)  smaller in capitalist economies than in socialist economies. 
D)  larger in capitalist economies than in socialist economies. 
A)  smaller in closed economies than in open economies. 
B)  larger in closed economies than in open economies. 
C)  smaller in capitalist economies than in socialist economies. 
D)  larger in capitalist economies than in socialist economies.

Question 20

The interest-rate effect

Accepted Answer

A)  depends on the idea that increases in interest rates increase the quantity of money demanded. 
B)  depends on the idea that increases in interest rates increase the quantity of money supplied. 
C)  is the most important reason,in the case of the United States,for the downward slope of the aggregate-demand curve. 
D)  is the least important reason,in the case of the United States,for the downward slope of the aggregate-demand curve. 
A)  depends on the idea that increases in interest rates increase the quantity of money demanded. 
B)  depends on the idea that increases in interest rates increase the quantity of money supplied. 
C)  is the most important reason,in the case of the United States,for the downward slope of the aggregate-demand curve. 
D)  is the least important reason,in the case of the United States,for the downward slope of the aggregate-demand curve.

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Which of the following events would shift money demand to the right?

If Congress cuts spending to balance the federal budget,the Fed can act to prevent unemployment and recession by

An essential piece of the liquidity preference theory is the demand for money.

The most important reason for the slope of the aggregate-demand curve is that as the price level

Other things the same,which of the following responses would we expect to result from an decrease in U.S.interest rates?

As income rises

Figure 24-5.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 24-5.A shift of the money-demand curve from MD1 to MD2 could be a result of

Which of the following events would shift money demand to the left?

The opportunity cost of holding money

Which of the following is correct?

If the MPC is 3/4 then the multiplier is

In recent years,the Fed has chosen to target interest rates rather than the money supply because

Open-market purchases

According to liquidity preference theory,investment spending would rise if the price level

The theory of liquidity preference was developed by Irving Fisher.

The Fed can influence the money supply by

Some economists,called supply-siders,argue that changes in the money supply exert a strong influence on aggregate supply.

A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are

The interest-rate effect

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply,demand,and Government Policies

Consumers, producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving,investment,and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Aggregate Demand and Aggregate Supply

Filters

Figure 24-5.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 24-5.A shift of the money-demand curve from MD₁ to MD₂ could be a result of